Available Credit for Builders Shrank and Was More Expensive in Q2 2022

According to the latest National Association of Home Builders (NAHB) Survey on loans for Acquisitions, Development, and Construction (AD&C) released on Thursday (8-11-22), credit became both less available and more expensive on AD&C financing during Q2 2022.

The AD&C Survey reveals that the average effective rate increased significantly from Q1 2022 for all categories of loans tracked in the survey: Loans for land acquisition rose from 6.32% to 8.19%; loans for land development rose from 7.85% to 9.55%; speculative loans for single-family construction rose from 7.90% to 8.63%; and loans for pre-sold single-family construction rose from 7.90% to 8.63%.

Changes in the effective rate may be due to changes in either the contract interest rate, or in the initial points charged on the loans. However, these relatively small changes were overshadowed by strong surges in the average contract interest rate for the specific loans: Loans for land acquisition increased from 4.36% to 6.19%; loans for land development increased from 4.60% to 6.27%; speculative single-family construction loans increased from 4.63% to 5.39%; and loans for pre-sold single-family construction increased from 4.61% to 5.24%.

The NAHB points out that the results of the Q2 AD&C Survey are consistent with general tightening of financial conditions and rising interest rates that they have reported in previous news articles.